It is hard to determine if consumers are receiving quality goods that do not cause them more money to replace a low-good with a higher-quality good. Advantages of GDP are many, with some of the more important ones being a way to define the business cycle, the ability to understand shifts in a country’s economy, and a measurement for competitiveness in a global environment. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. There are many advantages and disadvantages for GDP per capita. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. », Why is GDP per capita better than GDP total? In 1980, when China and India in the gross domestic product (GDP) per capita more or less equal, China has enjoyed a strong advantage in manufacturing. Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the … Advantages And Disadvantages Of Economy In Singapore's Economy 1117 Words | 5 Pages. GDP is a well-respected, clear assessment of the wealth of a nation’s economy. The resulting value by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period is known as Real GDP Per Capita. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. |~ », Easy to compare as the population of a country is taken into account, Gives good figures, so world leaders know where to spend money, Good indicator to show provision of services, Doesn't take the cost of living into account, Illegal workers and volunteers aren't included. Hides extremes; Doesn't say how wealth is spread; Doesn't take the cost of living into account; Only takes money into account; Illegal workers and volunteers aren't included; Evaluation. Disadvantages of the Real GDP Per Capita. GDP per capita is the gross domestic product of a country, as divided equally between each citizen (capita)Advantage - represents a country's economic productivity and the advancement of its industryAdvantage - easy to rank and measureDisadvantage - doesn't include the contributions of the informal economy (70% in African cities)Disadvantage - can hide inequalities within a nation (e.g… Limitations and drawbacks include the following: One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. When the GDP is adjusted for inflation, it is called nominal GDP. Also High GDP per capita might be accompanied by high levels of pollution and exploitation of the workforce, thus causing a decrease in living standards which is not reflected in GDP figures. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. There are several different advantages which are as follows: Limitations and drawbacks include the following: Real GDP per Capita helps in measuring almost everything that the country creates in the entire year and is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country but at the same time it does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. Real GDP reflects the value which has been adjusted for inflation while nominal GDP reflects the value without considering inflation (Abel, Bernanke and McNabb, 1998). Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. 806 8067 22, Registered office: International House, Queens Road, Brighton, BN1 3XE, geography - global development - how development is measured, Economics essay help on GDP and development! The GDP per capita the UK, on the other hand is $35 100 and was 36 th place in the world. finding it a bit difficult. Using GDP as an indicator of economic welfare and performance has its’ advantages and disadvantages. Is it time to end our fixation with GDP and growth? GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. Real GDP Per Capita is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country. The GDP per capita is a useful number for economists in some very general ways. You can learn more about accounting from the following articles –, Copyright © 2020. [Year 12 Enrichment Task] 21st May 2020. So wealth distribution cannot be seen with the help of the Real GDP per capita. A rise in th GDP per capita generally means economic growth and a rise in standard of living for many of the people in the country. Over time, consumers could spend more replacing cheap goods than they would have if they had bought higher-quality goods in the first place, and GDP would grow as a result of waste and inefficiency. Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. Per capita income is an average and this average may not represent the standard of living of the people, if the increased national income goes to the few rich instead of giving to the many poor. Thus unless national income is evenly distributed, per capita income cannot serve as a … Per capita GDP tells you, on average how much output each person provides to the economy, and is therefore a measure of economic health. so let us make an in-depth study on the advantages and disadvantages of globalization. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. GDP can be expressed in two terms, real GDP and nominal GDP. This could be food, doctors, clean water or teachers, so the country can develop once the educated people start working. Calculate the Real GDP per capita of the country under consideration for the year 2018. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. The biggest advantage of GDP per capita being used as an indicator of the standard of living is that GDP per capita is measured widely, consistently, and frequently. While calculating the Real GDP per capita, inflation prevailing at that point of time is also considered which helps in measuring the actual level of increase in the goods and services during the period of time in the company as it excludes any impact which arises due to the rising of the prices in the country. The reason behind the importance of environmental indicators. In addition, it is often used to rank countries in order to issue aid payments. It's my assignment. Registered office: International House, Queens Road, Brighton, BN1 3XE. As a result of globalization, we all enjoy many advantages. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. Often used to rank countries to establish a fair system of aid payments. Although the GDP per capita of a country may be very high, it may be the case that 10 percent of the country earn millions of times more than the other 90 percent of the country's inhabitants, who earn extremely low … Here real GDP can't measure Standard of living. Globalization gives us many advantages and disadvantages. (Source: John Sloman, 2006) From the Blog. ILLUSTRATION 2.3: © Copyright Get Revising 2020 all rights reserved. Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. GDP and GDP Per Capita. Discussions above show that GNP per capita is an inadequate measure of economic development and social welfare. Fifty years ago, the city-state of Singapore was undeveloped and lacks both arable land and natural resources with a GDP per capita of less than US $320. Answer and Explanation: Become a Study.com member to unlock this answer! This means that there is 20 times as much money per person in the UK compared to in India 2. Please i need some help », Can I please get some hand here? technology products, pharmaceutical, consumer electronics, and on a sector of growing financial service. However, this tells you nothing about the distribution, potential, or sustainability of the economy. », ~| Guess What? It refers to the measurement of total economic output in a country during a specified period divided by the total number of population of the country during the same period and considers the inflation prevailing at that point of time which helps in measuring the actual level of increase in the goods and services during the period of time in the company. Not all economists are in agreement with the use of GDP as a main economic measurement tool. One can tell from a country's GDP per capita how it performs economically relative to other countries and how it is performing overtime. Disadvantages. 1st advantage China has a more developed than in many developing countries and the balance of trade, China's much faster rate than India has been since the 1950s, manufacturing growth. Is national happiness going to be a better way to measure economies than GDP, in 2020? Real GDP per capita calculates an average figure, due to this it is not possible to get the output from it regarding the distribution of the income among the people of the country i.e., it does not tell that how the wealth is spread in the country. It is a Good indicator for showing the provision of the services. For example in a country, Real GDP for the year 2018 is $ 10 trillion and during the same year, the total population of the country is 250 million i.e., there are 250 million people in the country during the year 2018. Guide to what is Real GDP and per capita is measured when GDP is a well-respected clear! Be expressed in two terms, Real GDP ca n't measure standard living. 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